Before the tsunami of Mag 7 financial reports, Goldman Sachs provides seven observations!

The earnings season for tech giants has kicked off, and Goldman Sachs technology analyst Peter Bartlett has released seven key market observations ahead of the "Mag 7 earnings tsunami," with the market focusing on the significant volatility these earnings reports may bring.

Goldman Sachs pointed out that this earnings season exhibits a clear negative asymmetry, especially in the semiconductor and internet sectors, where good news leads to moderate increases or even declines, while bad news triggers substantial stock price drops. Notably, despite the options market's expectation of low earnings volatility, the actual volatility has far exceeded expectations, as evidenced by Texas Instruments' 13% drop following its earnings report.

Goldman Sachs also observed a significant return of retail/speculative trading, with its speculative trading indicator reaching a historical high outside of the periods from 1998-2001 and 2020-2021. Additionally, after Google's second-quarter earnings report, AI-related capital expenditure data further confirmed the sustainability of the artificial intelligence investment theme.

Earnings Reactions Show Negative Asymmetry

In the technology, media, and telecommunications (TMT) sector, Goldman Sachs observed a clear negative asymmetry in earnings reactions, particularly in the highly crowded semiconductor and internet sectors.

This quarter's earnings reactions are particularly striking: companies that performed well saw only slight increases or even declines in their stock prices, such as Netflix down 5%, Google up 2%, Flex down 8%, and NXP Semiconductors flat; while poorly performing companies faced significant sell-offs, for example, Texas Instruments plummeting 13%, ASML down 8%, and STMicroelectronics down 17%.

Data from Goldman Sachs' Prime Brokerage Services shows that the long-short ratio in the semiconductor sector is at a high level, indicating crowded positions among investors in this sector. While crowded positions do not typically pose performance obstacles in most environments, they can create short-term resistance at specific times such as earnings periods.

Actual Volatility Far Exceeds Options Market Expectations

The options market expects an average volatility of ±4.7% for this quarter's earnings, marking the lowest level in years and significantly lower than the previous quarter's ±7.1%. Goldman Sachs analyst Lee Coppersmith noted that the widespread adoption of systematic volatility selling strategies in the market has compressed index volatility, which in turn affects the volatility of individual stocks.

However, the actual volatility on earnings days for tech stocks this quarter has, in many cases, far exceeded the implied volatility from options, with Texas Instruments' 13% drop being nearly double the volatility seen after any earnings report in the past decade.

Given the current backdrop and levels of volatility trading, Goldman Sachs recommends that investors can amplify high-conviction investment ideas or hedge low-conviction trades through the options market.

Return of Retail and Speculative Trading Frenzy

Goldman Sachs strategist Ben Snider's team has released new research showing a significant rise in speculative trading activity, driving a limited short squeeze. Goldman Sachs' new speculative trading indicator has now reached historical highs outside of the periods from 1998-2001 and 2020-2021, although it remains below the peaks of those periods The rise in this indicator reflects an increase in the trading volume share of unprofitable stocks, penny stocks, and stocks with high enterprise value/sales multiples. Notable stocks that have performed well since July include: real estate digital platform company Opendoor Technologies up 354%, Kohl's up 61%, and donut chain brand Krispy Kreme up 48%...

"Tariff Exemption Growth Stocks" Momentum Weakens

One of the most significant thematic investments in the first half of this year was the concentration of funds into "tariff exemption growth stocks." However, as market tariff concerns have continued to diminish and valuations of these stocks have risen, Goldman Sachs observed a substantial shift in fund flows for this theme in July.

Representative stocks such as Netflix (down 11% for the month), Spotify (down 11% for the month), Take-Two Interactive (down 7% for the month), and media group TKO (down 7% for the month) have all shown a slowdown in momentum. However, it is worth noting that these stocks still have impressive performance year-to-date, and long-term bulls remain confident in their investment logic.

Capital Expenditure Data Validates AI Investment Theme

The enthusiasm for the AI investment theme seems to have reached unprecedented heights, and recent price trends and industry data points are validating this investment logic.

Earlier released financial reports showed that Google's capital expenditure in the second quarter increased by 70% year-on-year (up from the previous 43%), and it raised its capital expenditure guidance for fiscal year 2025 by $10 billion, while also indicating that capital expenditure is expected to further increase in 2026. The next data point for investors to watch is the capital expenditure trends to be released this week by Microsoft, Meta, and Amazon.

Most Watched US Stocks Last Week

Texas Instruments: Why such a large decline? The company recorded its second-worst trading day in twenty-five years due to concerns about demand in the second half of the year. Most analysts understand the direction of the decline but question the magnitude.

IBM: There is a clear divide between long-term investors (most of whom hold a constructive attitude) and hedge funds (many investors hold a strongly bearish view). Trading desk flows are primarily leaning towards hedge fund trading around short positions, with less activity from long-term investors.

Google: The consensus trading view before the earnings report was that strong data would drive the stock price up, but it fell back as the U.S. Department of Justice ruling (expected in mid-August) approached. This view largely holds, as Goldman Sachs indeed observed a reduction in positions before and after the earnings report MongoDB: Continues to attract attention with its differentiated long-term investment philosophy/transformation story. The stock has risen for nine consecutive trading days (up 20% during this period), and market excitement about its story is increasing.

Microsoft in high demand, Apple becomes the "largest short" target

This week, the U.S. stock earnings season reaches its peak, with Microsoft, Meta, Apple, Amazon, and Qualcomm releasing their earnings reports. A Goldman Sachs report pointed out,

Microsoft (to be announced on Wednesday): This year, its market value increased by $650 billion (approaching a total market value of $4 trillion), becoming a "simple" core long position for most growth, TMT, and generalist portfolios, with a holding scale of 9 on a scale of 1-10. Long positions are focused on whether Azure's growth can exceed 30%.

Meta (to be announced on Wednesday): Although still held by most investors and sentiment is generally positive, cautious sentiment has slightly increased in recent weeks. It has a holding scale of 8.5 on a scale of 1-10. Due to a strong advertising environment (benefiting from AI efficiency), strong quarterly performance and guidance are expected, but recent moves (hiring spree/outside data center investment) have sparked discussions about return on investment.

Amazon (to be announced on Thursday): This year, it has underperformed relatively ("only" up 5%), facing tariff uncertainties (which have eased in recent weeks) and some technical/funding flow resistance (as disclosed in Bezos's Form 4) as well as controversies over AWS growth in the second half of the year. It has a holding scale of 7 on a scale of 1-10.

Apple (to be announced on Thursday): Clearly differs from its mega-cap tech peers in terms of sentiment, funding flow, and holdings. As the largest mutual fund reduction target in the market and a popular relative short for hedge funds, Apple's performance this year (-17%, compared to Nasdaq's +9%) represents the "source of excess performance" for most investors. It has a holding scale of 4 on a scale of 1-10. The market expects the quarterly performance to exceed expectations, but uncertainty about its long-term competitive position seems to remain at historically high levels